Private Motor Insurance Under Market Study

Jack Humphrey, Regulatory journalist
December 21, 2011 /

The OFT has launched a market study into private motor insurance in the UK which will focus on the provision of third party vehicle repairs and credit hire replacement vehicles to claimants.

The decision to launch a market study was prompted by the responses to the OFT’s recent call for evidence. This focused on finding out the facts and reasons behind recent reported increases in private motor insurance premiums.

The market for the supply of private motor insurance encompasses credit vehicle hire organisations, repairers and other businesses providing services to drivers who have been involved in an accident; businesses that manage the provision of these services; and businesses that are involved in providing goods or services that are used by these service providers and those who refer work to these service providers.

Private motor insurance is understood as insurance cover supplied to UK based non-commercial car drivers. In its work, the OFT focused on the supply of car insurance and have excluded other forms of private vehicle insurance.

The OFT found that while motor insurance premiums in the UK have risen, actual premiums being paid appear not to have risen by as far as estimates based on analysis of comprehensive car insurance quote data might suggest.

The evidence the OFT has gathered suggests that private motor insurance premiums paid in the UK rose by around 12 per cent between 2009 and 2010, and by a further nine per cent in the first three quarters of 2011.

Responses received by the OFT indicated that a key factor in these increases has been a rise in the costs associated with personal injury claims. However, the increased cost of third party non-injury claims, which include credit hire replacement vehicles and third party vehicle repairs, are also factors which have had a notable impact.

As a result of this work, the OFT has reasonable grounds for suspecting that there are features of the UK’s private motor insurance market that restrict and distort competition relating to the provision of third party vehicle repairs and credit hire replacement vehicles to claimants.

In particular, it has found that private motor insurers responsible for meeting third party claims for credit hire replacement vehicles and/or vehicle repairs appear to have only limited control over the choice of provider and appear to find it difficult to assess the extent to which the costs claimed are reasonable.

Rival private motor insurers, brokers and credit hire providers may therefore have the opportunity, and the incentive, to carry out practices which allow them to generate revenues through referral fees, while simultaneously inflating the costs that the third party insurer has to meet. This in turn may contribute to car owners having to pay higher premiums.

The OFT also has concerns about the provision of motor legal protection cover to car owners and has called on the Financial Services Authority to work with private motor insurers, as soon as possible, to ensure car owners have access to appropriate information when purchasing this cover.

The OFT is concerned about the complexity of the product offering, and that the way it is being sold may make it difficult for car owners to assess the product’s value for money.

As part of its analysis, the OFT also looked specifically at the prices of motor insurance premiums in Northern Ireland, which it found were approximately 11 per cent higher than in the rest of the UK.

It considers that this may be partly explained by the fact that fewer consumers in Northern Ireland shop around for motor insurance – 55 per cent compared to 73 per cent of consumers in Great Britain. The OFT also received evidence that suggests there are higher personal injury compensation levels and higher legal costs associated with claims in Northern Ireland, as well as more frequent accidents.

The OFT expects to complete its market study by Spring 2012.


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